2018 (12) TMI 226 - AAR - GST

IGST not applicable on goods outside India, input tax credit eligibility ruled irrelevant

In Re: M/s. INA Bearings India Private Limited

The case involved the applicability of Integrated Goods and Services Tax (IGST) on the sale of goods located outside India and the eligibility of the ... Levy of GST - sale of goods outside India - section 7(5) (a) of Integrated Goods and Services Tax Act, 2017 - place of supply - entitlement of Input Tax Credit to the recipient of service - Scope of IGST Act - territorial jurisdiction - Held that:- There are two different transactions effected in present matter between the parties for the supply of same tools. One from foreign supplier to the applicant (in short T1) and second between applicants to customer within India (in short T2). The transaction covered by the present application herein after will be referred to as T2 transaction. The applicant would be purchasing from Schaeffer Germany, who is a manufacturer on principal to principal basis. The ownership of the said goods get transferred to the applicant without any physical movement of the goods from Germany to India. However the goods remain in the possession of Schaeffer Germany. Once the first transaction takes place applicant transfers the ownership of the goods to Indian customer by way of sale. In this case also the goods remain under the possession of Schaeffer Germany. In short, the order received by the applicant from their customer in India and the order placed by applicant On Schaeffer Germany is in the nature of back to back order. Inter-state sale or intra-state sale - Held that:- Supply of goods imported into the territory of India till they cross the customs frontier shall be treated as supply of goods in the course of inter-state trade or commerce - in the present case, the location of the applicant as a supplier of goods is in India and the place of supply of goods is outside India i.e. Germany and such impugned transaction get clearly covered by the scope of section 7(5) (a) of the Act. As a result the transaction is in the nature of interstate trade and commerce. From the harmonious reading of Section 7(2) and Section 7(5)(a) of the IGST Act, it is clear that the transaction referred to as T2 gets covered under the ambit of Interstate trade and commerce. And thus liable to tax as per Section 5 of the IGST Act. Levy and collection of GST - Held that:- As per Section 7(2) and 7(5) (a) of the [GST Act and proviso to Section 50) Of the IGST Act it is very clear that in respect of imported goods into the territory of India there is no levy and collection except in accordance with the provisions of Section 12 of the Customs Act, 1962 and Section 3 of the Custom Tariff Act, 1975. Section 12 of the Customs Act, 1962 provides that custom duties which includes integrated tax in respect of imported goods would be levied only at the time of import or export of goods - In case of goads supplied on an out an out basis as is in the present case, there is no levy till the time of their customs clearance in compliance with Section 12 of the Customs Act and Section 3 of the Customs Tariff Act. In view of this the imported goods sold from and to a non-taxable territory, though they are clearly in the nature of inter-state supply would come in the category of “exempt supply” as no duty is leviable on them except in accordance with proviso to Section 5(1) of the IGST Act. The goods sold in the subject transaction are non-taxable supply as no tax is leviable on them till the time of customs clearance in accordance with and compliance of Section 12 of the Customs Act, 1962 and Section 3 of the Customs Tariff act, 1975 - this position is further reiterated and confirmed by Circular No. 3/1/2018-IGST dated 25.05.2018 issued by the Central Board of Indirect Taxes and Customs, GST Policy Wing. The question of input tax credit do not arise, as no GST is levied. Ruling:- The sale of goods, which are located outside India, would not be liable to tax India under section 7(5) (a) of Integrated Goods and Services Tax Act, 2017. Issues Involved:1. Applicability of IGST on the sale of goods located outside India.2. Eligibility of the recipient to avail input tax credit if IGST is applicable.Detailed Analysis:Issue 1: Applicability of IGST on the Sale of Goods Located Outside IndiaThe applicant, engaged in the supply of bearings and tools, questioned whether the sale of goods located outside India would be liable to tax under section 7(5)(a) of the IGST Act, 2017. The transaction involves two stages:- Transfer of ownership of tools from Schaeffler Germany to the applicant without physical movement of tools (T1).- Transfer of ownership of tools from the applicant to the customer in India, with tools remaining in Germany (T2).The applicant argued that:- Levy of IGST cannot extend beyond territorial jurisdiction: The IGST Act extends only to the territory of India, and the tools are located outside India.- Tax collection would be unconstitutional: Article 269A of the Constitution does not define the transaction where the supplier is in India, and the place of supply is outside India as inter-state supply.- Cross-border transactions: These are covered under 'Inter-State supply' to exclude them from the purview of State Government, but this does not authorize IGST applicability.- Zero-rated supply: Should be interpreted liberally to include goods delivered outside India.- Place of Supply of Service: Unlike goods, services have specific provisions covering cases where the recipient is outside India.- Circulars on High Sea Sales: These indicate that tax is leviable only at the time of importation into India.- GST Returns: There is no mechanism to report transactions where the place of supply is outside India.- Historical taxability: Such transactions were not taxable under erstwhile indirect tax laws.- Double taxation: The transaction is already subject to EU VAT.The concerned officer agreed, stating that since the goods do not move into India, IGST Act will not apply. Section 10(1)(c) of the IGST Act determines the place of supply as the location of goods at the time of delivery, which is outside India.Observations:The Authority examined the facts and found that:- The applicant purchases tools from Schaeffler Germany, and the ownership transfers without physical movement.- The applicant then transfers ownership to the customer in India, with tools still in Germany.- The transaction is covered under section 7(5)(a) of the IGST Act, making it an inter-state supply.However, as the goods are outside India, they do not cross the customs frontiers of India, and thus, no IGST is leviable until they are imported into India. The transaction is considered an exempt supply under section 2(47) of the CGST Act, as it is a non-taxable supply per section 2(78) of the CGST Act.Conclusion:The sale of goods located outside India is not liable to tax under section 7(5)(a) of the IGST Act, 2017.Issue 2: Eligibility of the Recipient to Avail Input Tax CreditSince the sale of goods located outside India is not liable to IGST, the question of the recipient's eligibility to avail input tax credit is rendered irrelevant.Order:- The sale of goods located outside India is not liable to tax under section 7(5)(a) of the IGST Act, 2017.- The question of input tax credit eligibility is not relevant in view of the answer to the first question.